If people file for bankruptcy before the receipt of the stimulus rebates, they may be taken by the bankruptcy courts and used to pay a pennies on the dollar towards general unsecured debts like credit cards. For people filing for bankruptcy before the rebate checks are received, they may not have a choice on how to use the funds. Like tax refunds, the money is an asset and that may be taken by the bankruptcy courts if the bankruptcy debtor can’t exempt the money. If it is taken by the bankruptcy trustee, it will likely be used to either pay administrative fees (trustee fees) or will go to creditors, which are often credit cards.
For so many American families, the money is desperately needed to put food on the table, keep utilities on, or to buy gas to get to work. Some will buy things. Others will save the money. I predict that a lot of the checks will go into the credit card companies accounts as the money will be used voluntarily by families to pay towards debts.
As Doug Jacobs discussed in Bankruptcy And The Government’s Tax Stimulus (March 30, 2008), the “purpose is to get us out of the recession this country is experiencing by stimulating the economy; giving consumers more money to spend.” The tax rebates come from money our government collected that could have been used for social program, running the government, or paying down the federal debt. President Bush has said that they are being given to stimulate our economy by stimulating spending. It seems to me that those dollars may be going straight to the credit industry’s profits.
If you are filing for bankruptcy, be sure to ask your attorney about any tax refunds and the stimulus check and how to best protect them so you can control how they are spent.